China, an economic giant, has started the move to revitalize the ancient Silk Road. Its ambitious Belt and Road (B&R) initiative, which includes plans for a Silk Road economic belt and the 21st-century maritime Silk Road, aims to connect continental . The project has an .

A major B&R investment in South Asia is the $46-billion project, which connects the city of Kashgar in Xinjiang-Uyghur Autonomous Region of China to Pakistan’s Gwadar Port. An important part of the CPEC is the reconstruction and upgrading of the Karakorum Highway, a 1,300 km paved roadway across the Karakoram Mountains connecting Kashgar to Abbottabad. The highway, which first , serves as an important trade and transit corridor between China and Pakistan. It has shortened the distance between China and the Middle East .

Between China, Afghanistan, Tajikistan and Pakistan, inside the Pamir Knot, lies the Wakhan corridor. This strip of land sandwiched between the four countries was created as a buffer between the territories of British India and Tsarist Russia in the 19th century, which was then formally between the Kingdom of Afghanistan and the Chinese People’s Republic in November 1963.

The Wakhan corridor has historically been an important transit path of the ancient Silk Road route. According to , in the fourth and fifth centuries, the passes across the Pamir led Chinese pilgrims to the Buddhist centers in today’s Afghanistan and India and were used by Persian merchants to sell their goods in the Chinese market. Nazif Shahrani, in his , maintains that until the collapse of Mughal Empire in India, Wakhan was one of the main routes for traders and merchants between India, China and major cities likeĚýBactria and Bukhara in modern-day Afghanistan and Central Asia. It was due to the rapidly developing use of sea routes by Westerners to reach India and China in the late 15th century that the importance of the ancient Silk Road from Rome to China went into decline.

Geographic Complexity

Given the geography of the Pamir Mountains, building infrastructure in the Wakhan could be difficult and costly. However, there are many instances of projects that have been successfully completed in the similar and even more geographically complex terrains of the region. The Karakorum Mountains, into which the Karakorum Highway was built (using 1960s and 1970s technology, taking 20 years to complete), and the Pamir Mountains where the Wakhan corridor lies are in the same area with similar topography. A nutshell comparison of these areas indicates that the feasibility of infrastructure in Wakhan is increasingly viable given the road and tunnel-building technologies available in China today. The cost of the 400 km Wakhan project would be trivial compared to the or the Ěýfor the 1,600 km that opened in 2006. If such mega projects could be built on the roof of the world way back in the late 1970s and early 2000s, there is no reason to perceive geographic complexity as a barrier to building connectivity via Wakhan.

According to a , the trilateral agreement was signed in Dushanbe to connect Tajikistan and Pakistan via the Durah Pass during the tenure of Burhanuddin Rabbani, Afghanistan’s president from 1992 to 1996, after a Ěýto assess the best possible route that could connect Tajikistan and Pakistan. Although the decision has not yet found practical implementation, all the countries have independently built infrastructures approaching the corridor in their respective territories over the past decade. These recent developmentsĚý— which include theĚý, the first phase of the Chitral-Tajikistan highway completed in 2017; the over the Panj River constructed since 2002; a ; and roads connecting and onward to Afghanistan’s ring road and the port of HairatanĚý— imply that all the countries are implicitly keen to develop this route. These recent improvements have made the possibility and prospect of building infrastructure through Wakhan itself much more feasible.

What is currently missing is an initiative to open borders and collaborate. While geographical complexity has not been a barrier to the development of the infrastructure in Wakhan, security concerns and regional political play seem to be the major roadblocks on the way to the development of Wakhan.

Local Concerns

China’s main security concern has been from the separatist movement in its Xinjiang autonomous region. The movement of terrorist groups and the possibility of them building links with Xinjiang separatists was enough of an impetus for Beijing to keep the border closed for decades. However, these concerns seem to be fading away due toĚý in the Xinjiang region, where employment opportunities and improving living standards have brought more stability and peace.

Moreover, India, Afghanistan’s close regional ally, may not be happy with Kabul joining the CPEC. because Pakistan-administered Kashmir, through which the CPEC passes, is a disputed territory between Delhi and Islamabad and it has blocked India’s direct access to Afghanistan and Central Asia. Instead, India has invested in the trilateral Chabahar project with Iran and Afghanistan to compete with the CPEC. More importantly, India’s concern might be that the opening of Wakhjir pass, along with the already-opened Khunjarab pass, will give China the upper hand by enhancing its geopolitical and geo-economic dominance in the region.

However, countries around the Wakhan corridor have good economic ties and mutual interest for further cooperation with each other. The geo-strategically important Wakhan route, if built, would be the most efficient and the shortest possible bridge in the region. This would further strengthen trade and personal contacts. to date stands as the largest foreign investment in the country. Three Chinese state-owned companies have invested in Afghanistan’s lucrative mining sector after it was opened to foreign investors in 2007. Afghanistan’s Ministry of Mining and Petroleum signed the contract with a — the Metallurgical Corporation of China (MCC) and Jiangxi Copper Company Limited (JCCL)Ěý— for the exploitation of the Mes Aynak, the world’s second-largest copper deposits, in Logar province in 2008.

The other major Chinese investment in Afghanistan is in hydrocarbons. Based on a signed in 2011, China National Petroleum Corporation (CNPC) and its Afghan partner, Watan Oil and Gas, secured the exploration, development and production of the three blocks of hydrocarbon deposits of Amu Darya basin in Sar-e-Pol and Faryab provinces of Afghanistan.

According to data by the AfghanĚý, bilateral trade between China and Afghanistan has surged from $432 million in 2008-09 to $1.09 billion in 2016-17, an increase of 153%. Given this upsurge, the future of economic cooperation seems promising. This is further encouraged by connectivity that was recently established between the two countries with the opening of a Ěýin 2016. Similarly, Tajikistan and Pakistan have close economic and trade relations between themselves and also with Afghanistan (discussed here, and ), which will benefit further from better and shorter trade routes among them.

Neighbors With Benefits

There are three main advantages of building infrastructure through Wakhan corridor.

First, the inhabitants of the Pamir Knot — encompassing Gorno-Badakhshan Autonomous Region of Tajikistan, Wakhan District in Badakhshan province of Afghanistan, Kashgar in Xinjiang Autonomous Region of China, and Chitral in Khyber Pakhtunkhwa of PakistanĚý— share a common history, culture, religion and geography. People in this enclave have been isolated from wider civilizations for centuries. Moreover, the border areas among these four countries are widely underdeveloped and economically insecure. Their primary sources of livelihood have been livestock husbandry and, to some extent, agriculture. According to a 2008 report, the .

The foremost advantage of building infrastructure in this region would be to bring change in the life and livelihood of the local population. Their access to markets and cities would help them sell their products, get access to education and find alternative sources of income. Regional investment in infrastructure and trade would provide locals with reliable sources of employment, rejuvenating these people’s historical ties to the ancient Silk Road.

Second, connecting the bordering countries and facilitating economic integration through better infrastructure would lead to more stability and security in the region. Better customs controls and the deployment of border guards, as well as control of the illegal cross-border trafficking, would encourage legal exchange and cooperation. Indirectly, the integration of the border areas would strengthen local development and lead to an increase in the economic well-being of the local population, which would lead to more secure and stabilized border regions.

Finally, linking the Wakhan corridor to the Karakorum Highway would provide the shortest route for China to reach its mega projects in Afghanistan, and for the Afghans to access the vast Chinese market. The north-south expansion of the corridor would help landlocked Tajikistan to get access to Pakistan’s ports, allowing the Pakistanis to reach the resource-rich Central Asian republics by traversing Afghanistan through the shortest possible route.

If built, the Wakhan corridor would be the least costly trade route between China, Afghanistan, Tajikistan and Pakistan compared to the current alternatives. This should compel the four countries to transform this land buffer into a bridge between them.

Currently, CPEC benefits Pakistan and China, but it can be easily extended to include Afghanistan and Tajikistan. If the Wakhan route is connected to the CPEC, it would undoubtedly boost trade and transform the economic outlook for the entire region. Political bottlenecks and security fears should not hold back economic progress and regional prosperity. It would be in the best interest of the region as a whole to develop more projects like CPEC and Chabahar, with regional integration and economic cooperation in mind. These mega projects, linked together in good faith, could reinforce and facilitate trade and transit in the region with the lowest possible costs and numerous benefits.

The views expressed in this article are the author’s own and do not necessarily reflect 51łÔąĎ’s editorial policy.

Photo Credit:ĚýĚý/

The post The Bridge to Connect Asia appeared first on 51łÔąĎ.

Since 1947, Afghanistan and Pakistan have been closely intertwined by their cultural affinity, personal contacts and large volume of trade. These ties go back hundreds of years, when the cities of Balkh, Bagram, Kabul, Kandahar and Peshawar were major transit and trade hubs along the Silk Road, in what is present-day Pakistan and Afghanistan. Shah Hanifi, in his , states that “the 19thĚýcentury export of dried and fresh fruits and nuts from Kabul and Kandahar to India was perhaps the most lucrative of the economics of the three localities. Indian merchants financed this high volume exports, and Peshawar was an important base for a large number of bankers and financiers active in this trade.”

In 1965, Pakistan and Afghanistan signed the to facilitate the flow of goods and services across their borders. ATTA was renegotiated in 2010, leading to the establishment of the , which provided both countries the right to use each other’s specified land routes and ports for foreign trade. Based on Articles 3 and 4 of APTTA, Pakistan provides Afghanistan with access to use Karachi, Qasim and Gwadar Ports, as well as the Wagah route for overland trade with India. Pakistan was granted transit rights through Afghanistan’s border crossings at Ai-Khanum and Sher Khan Bandar (with Tajikistan), Aqina and Torghundi (with Turkmenistan), Islam Qala and Zaranj (with Iran), and Hairatan (with Uzbekistan). In 2012, the Pakistan-Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) and the Afghanistan-Pakistan Transit Trade Coordination Authority (APTTCA) were established to further facilitate the better implementation of APTTA.

Although the signing of the agreement led to a surge in volume of trade and transit among the two countries in the first years, its success had always been limited due to a series of seemingly endless political and security constraints. Based on data provided by the , the volume of trade between Afghanistan and Pakistan has dropped from $2.1 billion in 2015-16 to $1.5 billion in 2016-17 — a 28.6% decline. Transit trade has also fallen by 23% since 2010-11. According to a Pakistan’s exports to Afghanistan have declined by 36% since the fiscal year 2010-11, while its imports from Afghanistan have risen by 169%, with the overall trade balance in favor of Pakistan. Given the innumerable , political tensions and other , transit and trade might fall even more drastically in the future.

Border Closures

Over the last 15 years, Pakistan has time and again closed the TorkhamĚýandĚýSpin BoldakĚýpasses — the only ways for Afghanistan to reach seaports and Pakistani markets — detaining thousands of loaded trucks for weeks on both sides of the border. These sudden border closures have cost , and for Afghanistan in particular as the exporter of highly perishable goods such as fruits and vegetables. Farmers and small traders took a hard hit when an entire year’s worth of hard work rotted away on loaded trucks stranded on the border for days and weeks.

More recently, on October 17, according to , Pakistan not only prevented Afghan trucks from crossing the border but also, without any prior notification, increased the customs tariff rates by up to 150% on 120 out of 741 Afghan goods being exported to Pakistan.

This may be a rational response to the changing prices and revenue attraction. However, as widely believed, it may also be Pakistan’s response to the Trump administration’s South Asian policy, which is putting pressure on Islamabad to shut its safe havens for terrorists amid appeals for India’s support and involvement in Afghanistan’s war on terror. If the latter is true, this can be interpreted as Pakistan’s retaliation against policies favoring India or Afghanistan in the region. Pakistan has been using its advantage of being the transit route and the major export and import market for Afghanistan as a bargaining chip to show that Kabul has to pay the cost of superseding Pakistan through economic and political connections.

Afghan President Mohammad Ashraf Ghani took the tripling of tariff rates on Afghanistan’s exports as a justification to on October 23. Instead, he decreed that Pakistani trucks should unload at the border and their goods be carried to their destinations only by Afghan trucks — a practice that Pakistan has been doing since the establishment of APTTA in 2010 with respect to trade between Afghanistan and India over the Wagah crossing. Ghani’s decision is justified based on , which states that “the contract (APTTA) will remain in to force for a period of 5 years from the date of its enforcement (2011) and shall automatically be renewed for a further period of 5 years unless terminated by either contracting parties with valid justification(s).”

Trust Deficit

It is true that the persistence of the trust deficit between Afghanistan and Pakistan has signaled both countries to reexamine their geo-economic policies and look for alternative routes for their trade. Pakistan, as the main beneficiary of the China’s ambitious One Belt One Road (OBOR) initiative, and specifically the China-Pakistan Economic Corridor (CPEC), is working on its access to Tajikistan via China using the Karakorum Highway that would make Tajikistan its gateway to Central Asia. On the other hand, Afghanistan has also expanded its trade routes and partners in the region and beyond. Along with the partial opening of Chabahar Port — Afghanistan’s alternative to the Karachi and Gwadar Ports of Pakistan — and accession to the World Trade Organization in 2016, , 10 bilateral economic agreements and five tripartite agreements.

However, the long-standing trade relations and corporate and private consumers’ reliance on these trade routes and products make the continuation of trade and transit between Pakistan and Afghanistan essential. The neighbors are intertwined economically to such a degree that, at least in the short term, it is unlikely that either could find a lucrative alternative trade route or partner. The geographic proximity and the relatively low production costs for their respective exported goods help reduce the overall trade costs between the two countries. This economic and geographic interdependence and mutual gains should compel Afghanistan and Pakistan to immediately reinstate trade and transit and keep it isolated from political tensions.

Furthermore, the South Asian Free Trade Area (SAFTA) — a regional trade agreement between eight South Asian countries that was established in 2006 with the intention to promote and enhance trade and economic integration through tariff concessions — has almost failed to achieve its goals. Instead, over the last few years, numerous bilateral, trilateral and quadrilateral trade agreements have been signed, making the renewal and further extension of APTTA inevitable and a most viable option. There may be many reasons that hindered the implementation of SAFTA: non-cooperation among members due to political disagreements, especially between Pakistan and India; the inability of SAFTA and SAARC to play a role as a regional body due, to some extent, its inadequate institutional structures; and security fears as well as poor infrastructure connecting, or failing to connect, the countries in the region.

The main beneficiaries of APTTA over the years have been Afghanistan’s and Pakistan’s private sectors, which found wider market alternatives to export and import from. The APTTA also gave ordinary households access to a wider basket of imported goods and services, leading to a drop in prices for goods. According to a report for the fiscal year 2015-16, more than that have directly or indirectly supported the livelihood of millions of people in both the countries.

There is not only a mutual need to immediately renew the APTTA, but also to extend it to neighboring countries. The agreement would better serve the goal of regional and cross-regional integration if it could be renegotiated and transformed into a transit corridor between Afghanistan, Pakistan, India and Tajikistan. Its realization would not be difficult if trust among Afghanistan, Pakistan and India could be reestablished. In fact, India, along with Tajikistan, has showed interest for such a quadrilateral agreement, but Pakistan, while implicitly accepting the inclusion of Tajikistan, has explicitly refused the appeals for the inclusion of India in the treaty.

Due to the prevalence of chronic poverty and the threat of terrorism in South Asia, it is to the mutual benefit of all SAARC member countries to work together for a stronger regional integration. More economic and trade links would reduce poverty directly by affecting growth and income as well as acting indirectly by increasing trade volume, investment and employment opportunities. Each country should accomplish trade liberalization and, more importantly, devise mechanisms for trade facilitation by minimizing tariffs and removing all barriers to trade.

The views expressed in this article are the author’s own and do not necessarily reflect 51łÔąĎ’s editorial policy.

Photo Credit:ĚýĚý/

The post Why Pakistan and Afghanistan Should Keep Trade Away from Politics appeared first on 51łÔąĎ.

Worldwide, the private sector is the primary driver of economic growth. It plays a central role in the creation of capital, income, employment, mobilization of domestic resources, innovation and welfare growth. Between 2001 and 2014, Afghanistan’s private sector saw some progress and received investment in various fields such as banking, aviation, telecommunications, higher education, construction and health care. But, given the extent of opportunities and the pledge of millions in foreign aid, the country’s private sector could not sustain its potential as an impetus for economic growth.

The reasons for this are manifold, ranging from lack of investment incentives in the private sector and the adverse security situation to insufficient public and private sector partnerships and the lack of credit and financial resources. However, it was the misuse of millions of funds by former President Hamid Karzai’s highly corrupt government that hampered the potential competitiveness of the market and resulted in the creation of an inefficient oligopoly. Big banks, airline companies and procurement agencies were held and controlled by few vigorous hands with their networks inside the government.

Moreover, over the past decade and a half, donor countries and aid agencies have focused more on the security and defense sectors, and had limited constructive engagement with Afghanistan’s private sector and business community. Between 2002 and 2010, 51% of the totalĚýĚýwas allocated to the security sector. The remaining 49% was distributed across all other sectors, including infrastructure development, governance and rule of law, agricultural and rural development, health, education, the private sector, the media, culture and sports.

The fact that is often dismissed in debates and policy circles about Afghanistan is that the security problem in the country, to a large extent, has its roots in poverty, unemployment, illiteracy and poor living conditions. Many people are victims of illiteracy, poverty and a lack of prospects, falling into the hands of the Taliban and other insurgent groups who turn them against their country and government. Therefore, in the current situation, the revival and development of Afghanistan’s private sector would not only become an engine of economic growth and development, but it would also help in peacebuilding and conflict resolution across the country.

NATIONAL PRIORITY

In the transformative decade ahead, the revival and expansion of the private sector is a major task that, fortunately, the National Unity Government (NUG) has included in Afghanistan’s National Priority Programs (NPP). But the point to be underscored is that the status of Afghanistan’s private sector cannot be improved to the expected level if the task is left alone to the government. The major reason would be the highly insufficient capacity of Kabul to do so. This is why the attention and assistance of regional and international allies are required to provide capacity-building, technical support and technology transfer for the revival of Afghanistan’s private sector.

Having said that, a number of Afghan-Indian bilateral initiatives have the potential to reap benefits in trade and investment. More importantly, the direct effects of their cooperation can be seen in the rehabilitation of Afghanistan’s private sector.

Afghanistan and India have, historically, been strategic allies. Ties between the two nations are shaped by geography and have been strengthened throughout the history of sociocultural interactions. This relationship became further intertwined in the post-Taliban era. New Delhi’s assistance now stands at around $2 billion, makingĚý. India’s grants have been directed toward efficient use in community-based, small development projects such as the short gestation periods, institutional-building, infrastructural development, youth education, capacity-building and food-security assistance, which are vital and immediate needs in a postwar, underdeveloped country.

NEW WINDOW OF HOPE

Prospects for future cooperation and India’s development engagement in Afghanistan can be elicited by a cursory look at both governments’ lines when it comes to policy initiatives.ĚýThere are three principal reasons why Afghan-Indian relations can be seen as a new window of hope for the betterment of Afghanistan’s private sector capacities and the amplification of trade and investment connections between the two countries.

There is, first of all, the NUG’s strategy of promoting regional cooperation and connectivity, favorable investment and tax policies to attract foreign direct investment, ensuring a conducive business environment, approval of various trade and investment laws and, more importantly, firm counter-corruption measures.

In addition, there are gracious components in India’s foreign policy, namely theĚýdevelopment of the private sector in its aid recipient countriesĚýandĚýNeighbourhood FirstĚýand Act East policies. These urge India’s engagement in the development of the private sector of its least developed allied countries for further enhancement of trade and investment relations.

Finally, India’s geographical proximity and assistance with economic rehabilitation in Afghanistan since 2001 have been useful to turn the hearts and minds of the Afghan people in its favor.

There are a number of initiatives already in place.

First, on April 15, 2015, the Federation of Indian Chambers of Commerce and Industries (FICCI) and Afghanistan’s Chamber of Commerce and Industry (ACCI) agreed upon the establishment of a joint Afghanistan-India Chamber of Commerce and Industries (AICCI). The collaborative AICCI is a practical and significant step toward bolstering business cooperation and trade relations. The AICCI will provide a common platform for the exchange of information on economic capacities, relevant government policies, and rules and regulations regarding trade, investment and other related issues between both countries.

It would highlight the opportunities, as well as the bottlenecks, for business and industrial cooperation between both nations’ private sectors, and it would accordingly recommend measures and strategies to the concerned institutions of the two governments for better utilization of the opportunities and minimization of obstacles. Hence, a joint AICCI is an excellent platform for Afghanistan’s businessmen and businesswomen to learn from the Indian business community’s experiences and seek business-related technical assistance, training and consultancy. Moreover, given the relatively favorable connectivity, the full operationalization of AICCI would rigorously expand the two countries’ trade and investment, and would assist with the empowerment of Afghanistan’s private sector.

Second, based on a tripartite agreement between India, Iran and Afghanistan, New Delhi agreed in May 2016 to invest $500 million in a deal to develop Chabahar port. With the expected accomplishment of the first phase of this project by early 2018, the project will facilitate trade between the two markets, circumventing the difficult Wagah border route through Pakistan. Contrary to the Afghanistan-Pakistan Transit Trade Agreement (APTTA) signed in 2010 — allowing Afghanistan and Pakistan to use each other’s territory to trade with a third country — Islamabad has beenĚý. Currently, Afghanistan can only export goods to India but is not allowed to import Indian products along the route.

India’s investment in Chabahar port, besides creating more regional and trans-regional connectivity and helping landlocked Afghanistan to get access to the sea, will also fulfill New Delhi’s strategic interests. Chabahar port serves as a counterweight to China’s investment in Gwadar port in Pakistan, marking the China-Pakistan Economic Corridor (CPEC),Ěýwhich is part of Beijing’s initiative to revive the historical Silk Road. Furthermore, Chabahar will give India access to Afghanistan and the vast markets of the Commonwealth of Independent States and their abundant energy resources, and it would eventually connect it to European markets.

Third, Indian companies have had a historic interest in long-term investment in Afghanistan.Ěý. A consortium of seven Indian public and private enterprises won the bid and contracted the extraction of three of the four blocks of Afghanistan’s Hajigak iron ore deposits of some 128 billion tons of iron reserves. The contract for extraction of the remaining 25% of Hajigak ore was awarded to a Canadian company in 2001.

Besides iron, quality silk, cotton, handicrafts and carpet weaving present enormous potential of the Afghanistan’s textile production. To exploit this opportunity, India has been at the forefront to revive Afghanistan’s textile industry by providing the technical and capacity-building assistance.

Fourth, although Afghanistan and India have strong potential for trade, this amounted to onlyĚý. Based on the existence of underutilized trade potential between Afghanistan and India on the one hand, and Pakistan’s refusal of India’s inclusion in the APTTA on the other, the two countries have agreed to establish an air corridor to boost trade. This is part of the ongoing project by the NUG to construct and develop inland ports and special economic zones (SEZ) in nine airfields across Afghanistan. The project is a move toward the commercialization of military bases in the country that, if realized, would lay down the basis for better regional integration and alter the sociopolitical and economic dynamics of Afghanistan. Moreover, the development of SEZs is a signal of the government’s commitment to create a supportive environment for national and international investment and the development of the Afghanistan’s private sector.

MUTUAL BENEFIT

There are enormous opportunities available in Afghanistan and India that, if exploited, would guarantee mutual benefits and strategic advantages. Lucrative investment opportunities in various sectors of Afghanistan’s economy such as mining, manufacturing, agribusiness, telecommunications and construction have great potential for better returns on investment.

The rapid growth and expansion of the Indian economy, on the other hand, provides an increasing space for its private sector. According to a 2015-16Ěý, in 1986-87 — just a few years before the liberalization of the Indian private sector — gross capital formation was 10.9%, increasing to 25.2% in the fiscal year 2014-15. However, the 1986-87 share of the public sector was 12.5%, falling to 7.4% in 2014-15.

Better regional integration and overcoming Afghanistan’s geography can now, with India’s help, bridge it as a trade hub between South, Central and West Asia. Moreover, an empowered and developed private sector that becomes more feasible through institutional reform and infrastructure development would be an effective mechanism for combating poverty, unemployment and reducing conflict in Afghanistan.

The views expressed in this article are the author’s own and do not necessarily reflect 51łÔąĎ’s editorial policy.

Photo Credit:Ěý

The post Boosting Afghanistan’s Private Sector appeared first on 51łÔąĎ.